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ĎOn-demand economyí driving shorter freight contracts

‘Future of Freight’ report also identifies reliability and cost as most important factors for shippers selecting providers, well ahead of communications, crisis management, and a personal relationship

Shorter contracts and greater demand for spot rates are among several factors resulting from the increasingly agile supply chains required to serve an ‘on-demand economy’, which means more-frequent shipments and more-varied origins and destinations, according to the ‘Future of Freight’ survey and report published this week by freight automation specialist Freightos.

Based on the views of senior decision makers within the top 100 third-party logistics (3PL) companies, the report noted that increased IT demands from shippers were also a by-product of changing supply chains and expectations from customers, which in turn were also affected by generational differences.

“More and more of today’s logistics managers and freight buyers grew up with a smartphone in their hand and take for granted instant access to streaming video, e-commerce shopping and, in general, the world at their fingertips,” the report noted, adding that many young people had used high-tech modeling, gaming, and forecasting software for most of their lives. “Unsuprisingly, they now expect instant service from logistics providers.”

It said that in today’s connected world, shippers were empowered with more information, meaning that “while shipping was once an opaque industry, buyers are now more informed, thanks to improved freight information availability (e.g. price benchmarking, freight tracking technology)”.

As reported yesterday in Lloyd’s Loading List, according to the study, the two IT capabilities shippers are most demanding are tracking (83%) and real-time booking (70%), with 62% of senior business leaders now consider online freight platforms as an opportunity.

These increasing IT demands are part of a wider key change buffeting the freight industry in terms of changing customer expectations: Customers are demanding more, and this is further exacerbating profitability challenges, the report said.

According to the survey and report, freight senior decision makers rate two factors – reliability (95%) and cost (85%) – as critical for shippers when selecting providers, while communications (68%), crisis management (65%), and a personal relationship (52%), rate well behind.

It said these shifting customer expectations were playing out in a number of ways, including a belief among forwarders that shippers are consolidating the logistics providers they work with. Indeed, 71% reported that shippers are consolidating the logistics providers they work with, compared with 19% that reported no change and just 8% that reported that shippers are increasing the number of logistics providers they work with.

In terms of contract lengths and tendering, the study found that although 45% of respondents had experienced no change in the length of contracts, twice as many forwarders reported shorter contract lengths, at 37%, than the 18% that reported longer contract lengths. Similarly, the report highlights the trend towards greater demand for spot rates, with most forwarders either experiencing the same level (41%) or more demand for spot quotes (37%), compared to tenders, while only 18% reported fewer spot rate enquiries.

“This is unsurprising, given falling rates and because buying patterns are becoming more dynamic,” the report noted.

The result is that customers are “increasingly in the driver’s seat” of the relationship, expecting more service from providers anxious to hold onto their customers, the report concluded.